The author is a Forbes contributor. The opinions expressed are those of the writer.

Loading ...

Loading ...

This story appears in the {{article.article.magazine.pretty_date}} issue of {{article.article.magazine.pubName}}. Subscribe

“We want to be bigger than Walmart,” said Jack Ma, the founder and driving force of Alibaba Group, to CNBC on Friday, as his company’s shares began trading on the New York Stock Exchange.

Not only does Ma’s e-commerce giant want to surpass the Bentonville-based retailer, it thinks it will do so soon. In comments reported last October, Jonathan Lu, Alibaba’s chief executive, predicted the company will overtake Walmart to become the world’s largest retail network by 2016. Alibaba will reach transaction volume of $490 billion by that year, Lu predicted.

That’s not bad for the business founded by Ma, an out-of-luck English teacher, in 1999 in an apartment in Hangzhou. Since then, his online shopping sites have catapulted Alibaba past eBay and Amazon. In fact, Alibaba’s gross merchandise value is now bigger than that of the two American icons combined.

But don’t expect Lu’s prediction to come true. Alibaba is a great company with a terrific story to tell, but Walmart will still hold the crown as the planet’s biggest store when 2017 arrives. I believe Alibaba’s growth will slow considerably in 2015, if not in the second half of this year.

Most analysts disagree, believing Ma’s wish to overtake Walmart will soon be fulfilled. After all, the American-based retailer’s sales are barely growing. In the year ended January 31, sales were up only 1.6%. In its quarter ended April 30, the increase was 0.8%. In the period ended July 31, growth came in at 2.8%.

Compare that to Alibaba, which uses gross merchandise volume as a metric as it does not carry inventory. The company’s GMV in 2013 was $248 billion, 52% more than in 2012. GMV hit $69 billion in Q1, up 46% year-on-year, and $82 billion in Q2, up 45%. One estimate puts full-year 2014 GMV at $420 billion.

So Alibaba, which claims to be “the largest online and mobile commerce company in the world in terms of gross merchandise volume,” looks like it will overtake “old-economy Walmart,” which had sales of $473.1 billion in its last fiscal year, in 2015, a year ahead of Lu’s already ambitious schedule.

How could Alibaba fail to take the top spot? Most important, the company is primarily dependent on China when the Chinese economy is stumbling—in reality growing somewhere around 2%—and consumption is stagnating. Stagnating consumption is evident from private surveys and, among other indicators, falling imports and negative same-store sales for retailers. Tellingly, in Q2 Walmart’s international division had same-store sales growth in every country but China. Other major retailers also experienced falling same-store sales in that country during the quarter.

And there is little likelihood there will be a significant pickup in consumption this year or in the near future. Employment growth across the country is probably no better this year than it was in 2012 (0.37%) or 2013 (0.36%). Moreover, the downturn in housing values, evident across the country since at least May, and declining sales volumes will soon hit retailing hard as furniture and home appliance purchases will inevitably fall.

The bright spot for Alibaba, despite the grim overall outlook, is that online retailing is gaining popularity fast. Bain & Co. thinks the Chinese online market will expand 32% a year until 2015. China may have more internet users (632 million) and online shoppers (302 million) than any other country, but there is room for growth. According to Beijing’s projections, there could be more than 850 million Chinese online by 2015, but even that fantastic number is not the end of the story. As Ilya Grozovsky of SPQR Capital told the New Yorker, “There’s another two United States of Americas waiting to get online over there.”

Yet analysts, when talking about the prospects for e-commerce in the world’s most populous nation, seem to think buyers and sellers will flock only to Alibaba. In fact, the company already processes four-fifths of online transactions in China, so the room for upside for Alibaba is limited, despite the innovative things Jack Ma is doing to collect and mine customer data, integrate online and traditional retailing, and build logistics networks.

Moreover, Alibaba’s competitors are following the same strategies, and at least one of them, Hong Kong-listed Tencent Holdings, looks like it is executing better. For one thing, Tencent, with a stronger management team than Alibaba, is pursuing an acquisition strategy that is more disciplined—and easier to understand— than Alibaba’s. Tencent, for instance, recently advanced its cause with a strategic stake in online retailer JD.com, and its other buys seem smarter than Jack Ma’s. Ma’s seemingly reckless purchase of half of a soccer club—he was drunk when he struck the deal—is not the only recent acquisition to attract widespread criticism.

Although internet titans Alibaba and Tencent will surely dominate China e-commerce, virtually every major bricks-and-mortar retailer is going online in China, including Walmart, which in its Q2 report cited double-digit growth from its e-commerce operations there. In short, Alibaba’s growth potential in China is limited. Everyone is going to take a bite out of Jack Ma’s core market.

Given all the hype over consumption in China and China’s online growth, it’s no surprise that analysts were perplexed by Ma’s September 15 comments that Alibaba will be looking to Europe and the U.S. for growth. Yet he undoubtedly knows that his company, in order to continue to expand, will have to do so outside his home country. That’s undoubtedly why Alibaba talks about using IPO proceeds elsewhere. As Ma said in the middle of this month, “We hope to become a truly global company.”

So Alibaba has plans aplenty for the rest of the planet, but growth in transactions outside China will come slowly. Yes, it has ambition, money, a track record of success, and patience, but it is also going up against dominant players that will fight back, something that Alibaba, which essentially created online retailing in China, has never had to contend with.

To his credit, Ma is taking his time entering the American market to make sure he gets it right. He used his 2010 acquisitions of Auctiva and Vendio to build California-based 11 Main, a site for boutique retailers. The slow introduction of 11 Main, most often compared to Etsy, will surely be proven the correct approach, but the well-planned rollout means Alibaba will remain a niche business in the world’s largest economy for some time.